Beyond Buy-One-Give-One Retail

Socially minded entrepreneurs have recently started favoring a “buy one, give one” business model: a customer buys your product, and you donate an equivalent item to someone in need. Warby Parker and Kno Clothing do it, but Toms, a shoe company founded in 2006, pioneered it. For every pair of shoes that Toms sells, it donates a pair to children in a developing country, such as Malawi, Haiti, or Peru. It also sells and donates eyewear, in partnership with the Seva Foundation. Last month, the company announced that it will start selling coffee, which isn’t a great match for this model: caffeine deprivation is not high on the list of difficulties faced by people in the developing world. Instead, the company’s coffee sales will fund projects to supply clean water in developing regions. For this work, Toms will partner with the nonprofit Water for People. Coffee dehydrates, but water nourishes.

Toms was founded by Blake Mycoskie, a thirty-seven-year-old serial entrepreneur and a former contestant on “The Amazing Race.” The idea to branch out into coffee came to him during a trip to Rwanda, where he visited coffee farmers. Processing coffee beans requires an abundance of water, yet in many communities surrounding these farms families lacked access to water that is safe for drinking and cleaning. “That was the ‘aha’ moment for me,” Mycoskie said. To that end, in March, Toms launched its Toms Roasting Company.

Critics such as Valeria Budinich, one of the leaders of Ashoka, a nonprofit that advises companies on social responsibility, have noted that Toms’s product donations do little to address the root causes of poverty. Giving children shoes may enable them to attend school, but those children may still go hungry at night. Some have argued that Toms’s donations may actually cause harm, by reducing demand for locally produced goods. If Toms gives free shoes to people in Ghana, could that kill off local shoe stores? Adriana Herrera, the founder of the social enterprise Fashioning Change, has argued that Toms’s business model depends on the continued existence of recipients who cannot afford its products; in other words, it requires the persistence of poverty. Though Toms has opened factories in some of the countries in which it donates, including Haiti and Ethiopia, the bulk of its products are manufactured elsewhere.

By contrast, Toms’s coffee venture does not involve product donations. Instead, it links consumers’ purchases to the development of basic infrastructure—an effort, in part, to address some of the pitfalls of the company’s existing social-enterprise strategy. When I described the venture to Budinich, she told me, “That sounds like a better model. It’s much easier to make happen at scale, and, my God, the need cannot be more basic.”

Whatever its drawbacks, the buy-one-give-one model is simple to understand, and thus brilliant marketing. Its value may diminish as other companies copy the strategy, as pointed out in an article published by Christopher Marquis and Andrew Park in Stanford Social Innovation Review. But it works for now. Whether the model can support companies’ ambitions for growth is another matter, however. Mycoskie told me that he aims not just to offer more products under the Toms umbrella but to eventually expand into services such as hotels and banking—in other words, to become a Virgin Group with a social-responsibility bent. He envisions that branching out into services would allow Toms to address social issues more broadly: for instance, proceeds from a hotel could fund efforts to support the homeless.

By contrast, the buy-one-give-one model only works with a select list of products. A product can’t be too expensive, “and it works best if it’s identity oriented: it tells something about them as a person that makes them feel connected to the social mission of the company,” Marquis, a professor at Harvard Business School, told me. Many of the buy-one-give-one companies he and Park studied, for instance, sell apparel: shoes, baby clothes, backpacks. By buying and wearing these products, customers can readily display their loyalty to a cause.

Toms has given away more than ten million pairs of shoes, its original product, and it is on track to give away an additional ten million by the end of next year. Last year, the company’s sales reached an estimated two hundred and ten million dollars, according to the research firm PrivCo. The eyewear retailer Warby Parker, founded in 2010, has given away more than five hundred thousand pairs of glasses, and its sales hit nearly twenty-four million dollars last year, according to PrivCo. (UPDATE: A spokeswoman for Warby Parker said that PrivCo’s estimate of its sales is inaccurate.) But so far, the two companies are outliers in the “buy one, give one” category; few of their peers have matched their success.

Warby Parker’s social mission has been less integral to its growth than Toms’s has to its. In its marketing, Warby Parker emphasizes style and price much more than its buy-one-give-one model. Most of the numerous pressmentions of Warby Parker have focussed on its potential to challenge Luxottica, the parent company of LensCrafters and Pearle Vision.

Toms’s brand, on the other hand, is closely tied to its social-enterprise model. Though its alpargata-inspired slip-ons have become trendy enough to inspire a knockoff by Skechers, the shoes themselves are rarely the focus of buzz. Some customers have confessed they buy Toms products to support its mission, not necessarily because they love its style. This doesn’t bother Mycoskie. The company’s emphasis on social impact above its products’ attributes is intentional, he told me. “Our mission is exactly what we want the focus to be on,” he said. That mission, as James Poulos noted in a Forbescolumn, also protects the company from falling victim to fickle tastes or bad manufacturing; its products are, to some degree, beside the point.

But that model may not be enough for Toms to make the large-scale impact that Mycoskie envisions. Lately, Budinich told me, companies have begun to embrace a more sophisticated form of social impact. For instance, rather than simply donating funds or partnering with nonprofits, they are integrating social enterprise into their supply chains. She cited the example of Danone’s Ecosystem Fund, in which the company sources milk from small farmers. Meeting that ideal requires scale that few social enterprises have.

Through its expansion, Toms is certainly on the path to building that scale. Moving away from its distinctive approach to giving carries significant risk, however. Consumers are often less aware of the impact of more conventionally philanthropic companies, Marquis told me. “Think about some companies: Ben & Jerry’s, Newman’s Own,” he said. “You ask consumers why they are good, and they can’t tell you.” If so, Mycoskie may have to work hard to convince customers that they should buy coffee from Toms instead of from Starbucks.